Is the US Airline Industry Over-Optimized?

Guest Contributor

Too much of a dependence on analytics–and the cost-cutting it allows–can be a bad thing, as evidenced by last week’s travel delays that seemed out of proportion to the bad weather. “All the U.S airlines have over-optimized their operations to such a degree that they have very little slack in place to respond to unexpected conditions,” writes Guest Contributor Thomas H. Davenport. “When something goes wrong, they fall apart.”

Comments (2 of 2)

The previous commenter (joeMamaKnows) got it right. The cost premium in the airline industry for the sigma level you are suggesting would be outrageous. Analytics did not "cause this problem"; airlines simply adopted the risk-of-delay profile of their consumers. As a Deloitte employee, your praise for airline regulation and oligopoly is equally absurd..

11:41 am January 15, 2014

joeMamaKnows wrote:

JetBlue didn't plan for the new FAA rules. That's a gross error on their part.

As for the rest of the airlines, they do plan (like any other smart business) for events within a certain likelihood of occurrence. What you're talking about is planning for a 2-3 sigma event over one of the busiest times of the year. Not only are such events unlikely, but they would be incredibly costly to the business and the consumer. Imagine if the airlines had restricted capacity another 5-10% over the holidays? How much would you have paid for your airfare? How many would-be travelers would have been unable to travel? *IF* as an industry they decided to restrict capacity by such an amount, the public would be up in arms about the astronomical cost of airfare, and people like you would write about how the industry needs price regulation.

Your idea of an airline backup business is equally absurd. Airlines could do the same with lower costs than a 3rd party, meaning any such startup is doomed. Look at history - traditional airlines are a pretty tough to make money long-term. Why would anyone pay more for such a backstop industry that might have the potential to be used once a year?

Deloitte Touche Tohmatsu Limited's fourth annual Millennial Survey reveals the business activities and outcomes members of Generation Y would prioritize if they held leadership positions. In highlighting millennials' priorities, the survey results draw attention to this generation's values and the themes large enterprises should speak to if they wish to attract and retain members of this rising workforce.